Posted on 04/16/2012 8:50:39 PM PDT by Lorianne
Delta Air Lines Inc (DAL), burdened by the soaring cost of jet fuel, is seriously thinking of making some of its own by buying an idled ConocoPhillips (COP) refinery near Philadelphia, people familiar with the matter said Thursday.
Delta, the world's second-biggest airline by traffic, is in talks with Conoco to acquire its Trainer, Pa., facility at a cost of $100 million to $150 million, one person familiar with the matter said. Delta would hire an outside firm to run the refinery.
The move could help supply Delta's operations at La Guardia ...
(Excerpt) Read more at online.wsj.com ...
I agree very smart move but watch Obama put a halt to it
B I N G O
The arabs spent $Hundreds of Millions on setting up Obama to destroy the US as they send $Billions to the Arab nations.
Obama will NOT let anything like this happen. It would be the roadmap to bypass the Federal Government’s destruction of the energy sector at Obama’s direction.
Now THAT’S thinking ‘outside the box’!
I couldn’t get the whole story since I don’t subscribe to the WSJ (Investor’s Business Daily is far better), but the Delta management sounds like they’re really on top of their game.
Free enterprise is always better.
Unlikely a good move. How can an airline make a profit from an unprofitable refinery when the oil company’s business is refining?
Ping.
Running the supply, operations, maintenance, and distribution of a petroleum refinery in the northeast of the United States is a complex business. Especially if the refinery is 90 years old, already has environmental compliance issues, and faces the unknowable consequences of future greenhouse gas emissions limits. I suspect that ConocoPhillips knows a bit more about refining than Delta Airlines, and that’s why they put the Trainer refinery on the market.
“How can an airline make a profit from an unprofitable refinery when the oil company’s business is refining?”
By in-housing the ‘Crack-Spread’, and middleman profits.
It also takes a critical supply chain out of someone else’s hands, and puts it in yours, at what you know will be your most profitable hubs, after the slot-swaps.
Seems like a smart move to control a vital part of the supply train for your business.
However, I agree it is a bit risky.
“How can an airline make a profit from an unprofitable refinery when the oil company’s business is refining?”
The article states Delta would retain an outside company to run the refinery, so presumably this company knows what it’s doing, and
Conoco is a huge company and there may be economies of scale reasons for abandoning that refinery, even non-oil related reasons.
I’m just guessing but my bet is Delta is well advised on this and will consider all hazards before taking the plunge.
It’s not a new idea. Airlines have been in the oil business before, and Delta has been all along. They owned and ran a pipeline with a subsidiary, Epsilon Trading, which is still in the av fuel business.
United has also been in the oil biz.
I don’t think it is a smart move. ConLips closed the refinery for a reason... non-competitive to make the clean air upgrades in all probability.
On top of that, refining margins are good but not that good and Delta doesn’t know much about running a refinery.
There are probably 2-3 ways for this to go well, and 15-20 for it to not go well. I don’t underestimate the complexities of running a refinery; I actually find them quite interesting and wish I knew more about them.
But, I give Delta credit for the concept; the depreciation applied against their costs could make this a wise move, and they are probably buying the refinery at a low point. In some ways, it is deserved, because as another poster said, this is an older refinery. Geez, remember circa 2005-2007 when refining was the cat’s meow? Valero stock was a market darling, they bought up large numbers of smaller refinieries...now VLO is trading at about 1/3rd its stock price then. Guess the world decided refining was a crappy business. (It is)
Delta Air Lines considers buying a refinery to cut fuel costs
Interesting PING.
Plus added links at #14/15.
Delta’s management cant run an airline so its good to try other things...
I’m with you. Upstream vertical integration into the fuel business? That’s just nuts. How far from your core competency can you possibly get?
Remember when Ford ran its own ore docks, steel furnaces, coke ovens, rolling mills, glass furnaces and plate-glass rollers? They also had a tire-making plant, stamping plant, engine casting plant, frame and assembly plant, transmission plant, radiator plant, tool and die plant, and, at one time, even a paper mill. A massive power plant produced enough electricity to light a city the size of nearby Detroit, and a soybean conversion plant turned soybeans into plastic auto parts.
There’s a reason Ford doesn’t do that any more.
They’re not closing the refinery because it was making too much money. They’re closing it because there’s no money in operating refineries.
The East Coast is having a major problem getting crude in to refine. All their crude comes from the middle east and Africa and the price is much higher than WTI.
There’s no money in refineries especially on the east coast. The source of crude is from the Middle East and Africa. Maybe Delta plans on flying crude in from ND or the gulf coast. (the last was meant to be a joke)
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